(Nikkei BP Group)
(No.1 High-Tech News Site in Japanese)
| Japan's Finance Industry Draws Measures for Year 2000 Problem
September 14, 1998 (TOKYO) -- Many media articles claim Japanese financial
institutions are slower to tackle the millennium date-change issue than
their U.S. counterparts, but the opposite is true, says Nikkei Computer
|System divisions in the Japanese financial started to take the initiative
in providing solutions to the Year 2000 problem long before U.S. industry
began to be aware of it. They were driven by significance of the problem.
However, few Japanese banks and financial institutions told the truth
about their efforts to the U.S. side, which is seemingly the reason
the Japanese were considered slower in taking Year 2000 measures. Nikkei
Computer magazine discovered the following facts.
Japan's Media Reports Japan is Reluctant on Y2K
In Japan, media such as Nihon Keizai Shimbun (Nikkei), Inc., The Yomiuri
Shimbun Inc. and Asahi Shimbun Publishing Co. treated the Year 2000
problem in information systems as a primary news story around late July
and early August.
Nihon Keizai published an article with the title, "Warning to Japan's
Response," in its morning edition on July 24. The article, with a focus
on various sectors including the financial sector, cited the U.S. attitude
manifested in a July 22 trial at U.S. stock exchanges and securities
companies. The paper said "there is no denying a delay in Japan's response
(to Y2K)." As an example, it pointed to an interconnectivity test of
the Bank of Japan's financial network system that will start at the
end of 1998.
Asahi's editorial of Aug. 14 said: "Japan's moves are slow. Especially...we
are worried about our financial institutions." It concluded that even
if the delay should continue, "Japan must not be a cause of another
world crisis in terms of information systems."
Why Moody's Said Japanese Banks Weren't Ready
In May this year, America's ratings company Moody's Investors Service
issued a report titled "Heading Toward Judgment Day," which many observers
in the Japanese financial world consider a trigger for the emerging
awareness of the "delay of Japanese financial institutions taking measures."
"There are a lot of question marks about major Japanese banks' degree
of preparation for the Year 2000," the report said.
Ryan O'Connell, a Moody's analyst, wrote, "Unlike other global banks,
the Japanese say that they do not have any major problems -- and how
they achieved that happy state of affairs is a mystery," after he had
met executives of banks of the United States, Europe and Japan.
The reason why he was skeptical is that an interviewed Japanese bank
confessed that it bank had no significant problems and no plans to spend
a large sum of money to handle the issue, though the name of the bank
As a consequence, the Moody's report seemed to be oriented to emphasize
high levels of awareness by U.S. banks' management over the Year 2000
problem, and recognize their projects and huge budgets.
By contrast, Japanese banks were described as being driven by emergencies
such as huge bad loans and a recession, without much scope for fully
tackling complicated computer problems.
Though it is true that Japanese banks have been busy dealing with urgent
issues such as bad loans, what the report said about Japan's millennium
bug problem is not true, Nikkei Computer said.
Nikkei Computer approached several Japanese banks and found that the
Y2K problem is not as critical in Japanese banks as in U.S. banks, and
hence they don't have to invest as much as U.S. banks do to correct
Prospects for degree of preparation at Japan's financial institutions
for the Year 2000 problem are bright. This does not mean that Japanese
banks have worked out any sort of secret plans. It is simply because
the in-house information system division of each company has been taking
the initiative in providing solutions to the millennium problem following
a long-term plan.
Solutions Provided in Third-Generation Online System
Japanese banks ran a project called The Third Generation Online System
between 1987 and 1992. It was followed a little later by securities
and insurance companies. In the project, they had applications and databases
modified across the board.
Mainframe makers participating in the project confirmed that in principle
they modified their calendar systems so that four-digit expressions
on databases are usable. A host of financial institutions explained
that the system division of each institution was aware of implementing
measures for individual programs to cope with Year 2000 four-digit dates
in their daily maintenance operations.
Japan uses unique names of an era, the so-called Emperor calendar, as
well as the Christian calendar system. With simultaneous use of the
two different calendar systems, "System divisions of financial institutions
made descriptions of logic of calendars independent of a program as
a contrivance to make maintenance easy," said Teiichi Aruga, senior
managing director of CSK Corp. Aruga is well informed about systems
in both Japanese and U.S. banking institutions. This experience helped
Japanese companies achieve a smooth transition from Showa to Heisei,
the names of two different Imperial periods, which occurred 10 years
Surveys on the Year 2000 problem conducted by the Bank of Japan and others
often present results such as "48.3 percent of the total have completed
establishing measures in accounting systems as of the end of June 1998."
However, that does not mean an overall delay in Japan's Y2K, for many
companies in the financial sector have schedules which set the goal,
or completion of solution implementation, at mid-1999 or before.
U.S. Financial Institutions Have More Difficulties
"Frankly speaking, it is apparent that U.S. systems development is not
so well organized as Japan's," said an executive of IBM Japan Ltd.,
who is an expert in systems both in Japan and the United States.
In general, systems units in U.S. companies have a narrower scope of
responsibility in comparison with their Japanese counterparts; therefore
field business divisions often change systems without consultation with
them. Furthermore, engineers in systems and business units usually don't
stay long in one position.
This leads to difficulty in discovering trouble points in a system.
In case no problems are found in a system, the system continues to be
in operation for decades. Once a decade Japanese companies usually replace
an old system completely with a new one, which is not a practice in
the United States.
What poses a significant problem in U.S. systems is "there is no need
for conversion of a calendar system to another, so most calendar logic
is directly embedded in programs," said Aruga of CSK.
Other factors also exist. The original developers may have already left
work, and related documents are rarely found. The remaining engineers
have to check large-sized programs literally step-by-step, going through
source files. These conditions together seem to snowball, and make it
hard to solve the Year 2000 problem. That often leads U.S. banks to
spend a lot more money than Japanese banks.
Japanese banks have some problems of a different nature as well. They
employ too many in-house engineers, which pushes costs up, and they
continue periodic modification of programs, including those of less
strategic value. However, as to the Year 2000 problem, Japan has had
a better chance of finding easier solutions, the Japanese magazine said.
Nikkei Computer found that as has been noted, it is apparently a wrong
notion that the Japanese financial sector, apart from other industries,
is slower in coping with the millennium problem than U.S. companies.
Even so, strong policies for intensely investigating the progress of
solving the Year 2000 problem have been set forth by the Financial Inspection
and Supervision Agency, the Bank of Japan and the Tokyo Stock Exchange,
probably in response to some guidance presented by the United States.
"We have prepared for the Year 2000 with a long-term plan, and are seeing
reasonable progress. The further investigation they said they'll do
makes no sense to me," said a system department manager of a property
(Nobuyuki Yajima, Associate Editor, Nikkei Computer)